British Pound: Up, Up And Away

 | Apr 18, 2017 | 12:00 PM EDT
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The British pound is at a four-month high against the U.S. dollar on news that British Prime Minister Theresa May is calling for early elections. This is intended to drum up support for Brexit. The elections are to be held in June.

Brexiit is slowly becoming bullish for the pound as I said it would. It's taken longer than I thought, but nonetheless it's happening. The vote to leave the EU was never as catastrophic as the doomsayers were screaming. The selling of the pound on the night of that historic vote and the fall afterward was absolutely ridiculous.

There was also that flash crash, the one last October that took the pound/dollar exchange rate down to $1.13 in minutes. There were forex pro's saying that that low would be tested again. I said never. I wrote columns right here in Real Money saying never; telling you to buy the pound instead. I said stupidity is not rewarded.

Everything that the U.K. is doing with respect to its economy and monetary policy is bullish for the pound. Austerity is bullish. The push for balanced budgets is bullish. The desire for trade surpluses is bullish. Low interest rates are bullish.

By the way, on a side note we see that Goldman's earnings missed badly today. They partially blamed their poor results on bad trading; one of those trades being long the dollar. Why was Goldman betting on a stronger dollar? Because they said the Fed was in rate hike mode. Here's Goldman, the supposed savviest firm on Wall Street, not knowing that rate hikes are bearish for a currency. They are price increases, inflationary and a de-facto fiscal expansion. Who told you all this? Me. Who told you that the dollar would go down following Fed rate hikes? Me. If Goldman wants better earnings they should hire...me.

Back to the pound. The devaluation in the pound as a result of all that foolish selling has made it extremely competitive. If policy makers in the U.K. are looking to grow exports and run trade surpluses, then they will be able to do it even if the EU imposes big penalties on them for leaving, though frankly I don't understand why any developed nation would want to do that. In any event, they can thank the fools who shorted the pound for the opportunity.

Speaking of the EU, next week is the first round of the French presidential elections. Right now it's too close to call, but many think that right wing candidate Marine Le Pen has a good shot. She stands for leaving Europe and leaving the euro as well.

Frankly, I don't think the euro is doomed. The French elections will definitely go to a second and perhaps even a third round and the country looks so divided between right, left and middle of the road "globalists" that whoever is chosen in the end will only be able to put together a government that pretty much reflects those divisions, meaning that not a whole lot will change.

There are lots of speculators short the euro right now and given the prospects of not much change coming out of the election (look at Trump, he's gone total establishment, too) I think the outlook for the euro is probably higher on short covering. It's higher for the British pound, too. Unwinding stupidity.

Oh and, yeah, there's another way to say that: It's called, dollar going down.

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